Company Perspectives:

Our sole purpose is to end human suffering caused by disease. Because disease does not wait for solutions, we are driven by a sense of urgency. As a result, our environment is intense, challenging and focused on creating value for those who use our products and sustained profitable growth for those who invest in our company.
Key Dates:

Key Dates:

1981:

William Rutter, Edward Penhoet, and Pablo Valenzuela found Chiron Corporation.

1983:

Company goes public.

1990:

Company posts first profit.

1991:

Company acquires Cetus Corporation and its cancer treatment, Proleukin.

1992:

FDA approves Proleukin for the treatment of metastatic kidney cancer.

1994:

Ciba-Geigy and Chiron form alliance, with Ciba-Geigy gaining a 49.9 percent stake in the company (Ciba-Geigy later became Novartis AG and the alliance continued, with a 44 percent stake).

1995:

Chiron acquires the Iolab division of Johnson & Johnson and Viagene.

1997:

Company sells its ophthalmic business to Bausch & Lomb.

1998:

Seán P. Lance is named CEO; the company sells the bulk of Chiron Diagnostics to Bayer.

2000:

Company announces that it will acquire PathoGenesis Corporation.

Company History:

Chiron Corporation is a leading biotechnology company focusing on cancer, infectious diseases, and cardiovascular diseases. In the area of biopharmaceuticals, Chiron's therapeutic drugs include Proleukin, used to treat metastatic kidney cancer and metastatic melanoma, and Betaseron, a treatment for a specific form of multiple sclerosis. The company is a leading provider of blood testing products used by the blood banking industry to screen donated blood, including widely used tests for hepatitis and HIV. Chiron has a strong presence as well, particularly in Europe, in the vaccines market, making and marketing a wide range of pediatric and adult vaccines. Among Chiron's innovations in the pharmaceutical industry are the first genetically engineered vaccine, the first blood screening test for hepatitis C, the first drugs to treat multiple sclerosis and metastatic kidney cancer, and the first cloning and sequencing of the HIV genome. Chiron was also one of the first biotechnology companies to post a profit, making $6.8 million in 1990. The company has an alliance with Swiss life sciences company Novartis AG, which holds about 44 percent of Chiron's common stock.

1980s Start-Up

Chiron was founded by Dr. William Rutter, a biotechnology researcher at the University of California in San Francisco. In the late 1970s, Rutter led a team of researchers that made an important breakthrough in the relatively new science of genetic engineering: equipping bacteria with the ability to produce limitless quantities of insulin. Advances in the field rapidly ensued, and several companies sprang up in the early 1980s with the intent of developing these discoveries into marketable healthcare products. As the industry took off, new companies began recruiting the best scientists from university laboratories, including the one led by Rutter. Rather than see his best researchers work for other companies, Rutter chose to found his own biotechnology firm. As he told Fortune magazine, 'It became obvious that I had to either get in or lose out.'

In 1981, Rutter, Edward Penhoet, and Pablo Valenzuela founded Chiron Corporation, which they named after the centaur in Greek mythology who taught medicine to Asclepias, the first physician. Soon after its founding, Chiron produced the first genetically engineered vaccine, another milestone in the burgeoning biotechnology industry. Chiron licensed this new vaccine, created for the prevention of hepatitis B, to the pharmaceutical giant Merck & Co., Inc. Pending Food and Drug Administration (FDA) approval, Merck would market the vaccine and pay royalties to Chiron.

Unlike many start-up biotech firms at that time, Chiron did not intend to become a fully integrated pharmaceutical company. Its marketing agreement with Merck became the first in a series of partnerships through which Chiron would bring new products to the marketplace while focusing primarily on biotechnological research into infectious diseases and viruses. In 1983, Chiron made another breakthrough when it became the first to clone epidermal growth factors--a genetically engineered protein that controls the way a wound heals. Funding for the project was provided by Ethicon, Inc. which, in return, gained the right to market the proteins once they received FDA approval. Also that year, although it had no products on the market, Chiron went public at $12 a share.

In 1984, Chiron became the first to clone a genome (genetic skeleton) of an AIDS virus called HTLV-3, the second step in developing a method of detecting and some day preventing infection by HIV. Two years later, Chiron won FDA approval to sell its hepatitis B vaccine through Merck. Chiron also formed a division called the Biocine Company, a joint-venture with Ciba-Geigy, Ltd., focusing on the development and marketing of other new vaccines. In 1988, Chiron's Biocine division filed with the FDA for approval of an AIDS screening test and began research into an AIDS vaccine. The following year, the Biocine Company purchased Canada's Connaught BioSciences, a vaccine manufacturer to be owned 50 percent by Chiron and 50 percent by Ciba-Geigy.

Chiron researchers also continued to study hepatitis, and, in 1988, they discovered the hepatitis C virus. Previously undetected, the hepatitis C virus had caused approximately 150,000 people each year to become ill through infected blood transfusions. To market hepatitis C screening tests, Chiron joined forces with Johnson & Johnson's Ortho Diagnostics Systems. Under the name Chiron Diagnostics, the division developed several blood tests to screen for various forms of hepatitis, and these tests were sold to blood banks and hospitals worldwide.

Primarily due to heavy outlays in research and development, Chiron posted losses for eight straight years. In the spring of 1989, Chiron raised $52 million through an equity offering and sold an eight percent share to Ciba-Geigy. While this move greatly increased the company's cash reserve, Chiron finished this year with a loss of $21.6 million on revenues of $35.4 million. In 1990, however, Chiron posted its first profit: $6.8 million on revenues of $78.5 million. Its products, including the hepatitis B vaccine (marketed through Merck), its blood testing systems, and recombinant human insulin marketed through Novo/Nordisk brought in over $600 million in sales.

Steady Growth in the Early 1990s

Chiron entered 1991 with a strong balance sheet. In July of that year, the company purchased a rival biotechnology firm, Cetus Corporation, for $650 million in stock. Cetus's major product was a highly touted cancer treatment called Proleukin or interleukin-2, which its EuroCetus division had been selling in Europe for several years. The FDA had refused to approve use of the drug in the United States, however, and Cetus's chairperson resigned his post, leaving the company without direction and with a product whose image had been greatly tarnished. Chiron stepped in, continued testing Proleukin as the FDA had requested, and merged Cetus's projects with its own. With the purchase, Chiron also acquired a state-of-the art research facility, not far from its own headquarters in Emeryville, California.

By 1991, Chiron's operations had grown to include a complex network of joint ventures and marketing agreements with several pharmaceutical companies. Chiron thus reorganized its business into five units. Its cancer research department was merged with Cetus's oncology business under the umbrella of Chiron Therapeutics. Chiron Diagnostics, the joint venture with Ortho, absorbed Chiron's research on the HIV virus and began developing various forms of testing for that and other viruses. Chiron's burgeoning ophthalmic business merged with IntraOptics, Inc. to form Chiron IntraOptics, which manufactured a comprehensive line of surgical instruments used to correct cataracts and other vision problems. The Biocine Company purchased the children's vaccine division of Italy's Sclavo SpA, and renamed it Biocine Sclavo. A fifth business, Chiron Technologies, was created to absorb the company's Ethicon-funded research into growth factors, the development of a drug to treat multiple sclerosis (Betaseron), and also to develop and acquire new products and business.

Chiron posted a loss of $425 million in 1991, primarily due to its merger with Cetus, which had also been posting heavy losses. The next two years, however, proved promising for the company. Biocine began the first phase of testing its AIDS vaccine under the sponsorship of the AIDS Vaccine Evaluation Group and the National Institute for Allergies and Infectious Disease. In 1992, Chiron Therapeutics finally obtained FDA approval to market Cetus's Proleukin, and, in 1993, Chiron Technologies received approval to market Betaseron, its first genetically engineered drug to treat multiple sclerosis, and an agreement was reached with Schering AG's Berlex Laboratories to market the new treatment, giving Chiron 25 percent of sales revenue. Buoyed by the successes of Proleukin, as well as strong sales of its blood-testing products, vaccines, and insulin, Chiron posted a 1993 profit of $18.4 million on revenue of $317.5 million.

In late 1994 Ciba-Geigy increased its stake in Chiron to 49.9 percent as part of an alliance agreement whereby the two companies would remain independent but would collaborate in certain areas of research, manufacturing, and marketing. In addition to an infusion of cash, Chiron also gained full control of the Biocine vaccine joint venture and took over Ciba-Geigy's Corning Diagnostics unit.

Searching for the Right Formula in the Late 1990s

Chiron further bolstered its operations in 1995 through two acquisitions. In March the company purchased for $95 million Johnson & Johnson's Iolab division, maker of eye-surgery equipment, thus expanding its ophthalmic business. Then in September Chiron completed a $120 million cash-and-stock buyout of Viagene Inc., a San Diego-based biotechnology firm that had been collaborating with Chiron on gene therapy research since November 1993. In 1996 Chiron purchased 49 percent of Hoechst AG's vaccine business, then purchased the remainder in early 1998. This acquisition vaulted Chiron into the top five among the world's vaccine makers, with a particularly strong presence in the European market.

In 1996 and 1997 Chiron suffered a series of setbacks. In November 1996 the company dropped development of a potential vaccine against genital herpes upon finding, after 14 years of research, that the product simply did not work. A few months later, the FDA refused to grant approval to a treatment for Lou Gehrig's disease that Chiron had developed in partnership with Cephalon Inc. The FDA said that the companies, who had spent $130 million on the drug, had failed to prove its effectiveness. By this time, Betaseron had proven to be less than the blockbuster anticipated due to troubling side effects and the 1996 FDA approval of the competing drug Avonex, which had been developed by Biogen, Inc. Chiron had also encountered difficulty manufacturing its whooping cough vaccine that had emerged from final testing in mid-1995; as a result, competing vaccines reached the market first.

In the midst of these travails, Penhoet, who had served as president and CEO since the company's founding, announced in January 1997 that he planned to step down from his operational posts to become vice-chairman. While a lengthy search for a successor dragged on, Chiron sold its ophthalmic business to Bausch & Lomb Inc. in December 1997 for about $300 million. That same month, the FDA granted approval for a second use of Proleukin, that of treating metastatic melanoma.

A 14-month CEO search finally ended in March 1998 with the hiring of Seán P. Lance, a 30-year pharmaceutical industry veteran who had most recently served as the head of international operations at Glaxo Wellcome plc. Under Lance's leadership, Chiron began restructuring, closing facilities in St. Louis and Puerto Rico, integrating others, and selling off another unit. In November 1998 the bulk of Chiron Diagnostics was sold to Bayer AG for about $1 billion in cash. Chiron retained its highly profitable HIV and hepatitis C blood testing businesses. Lance also more tightly focused the company's research efforts, emphasizing blood-screening applications and a handful of the most promising new drugs, as well as attempting to find new uses for current drugs, including Proleukin and Betaseron.

In May 1999 Lance took on the additional post of chairman, as Rutter stayed on the board as chairman emeritus. Lance's new direction for the company appeared to be paying off by the turn of the millennium. In the first half of 1999 Chiron launched a new blood testing system for both HIV and hepatitis C that used a new nucleic acid testing process and was an improvement over previous systems. In October 1999 Menjugate was approved in the United Kingdom as a vaccine against meningococcal C disease, a deadly form of meningitis. In August 2000 Chiron agreed to pay $700 million in cash for Seattle-based PathoGenesis Corporation , best known as the manufacturer of Tobi, an inhalable antibiotic used to treat chronic lung infections arising from cystic fibrosis. PathoGenesis had a number of other antibiotics in its pipeline, with its specialty being drugs that could be inhaled, and that were therefore targeted to treat pulmonary conditions.

The addition of Tobi to its major commercial products and the bolstering of its product pipeline would provide a significant boost to Chiron. A major question hanging over the company, however, was whether it would continue in its quasi-independent state. Novartis AG, the Swiss company that resulted from the December 1996 merger of Ciba-Geigy and Sandoz Limited, held about 44 percent of Chiron's common stock and could, after January 5, 2001, raise its stake or initiate an outright buyout.